July 2018 Regarding the current status of the management of the Nikkei 225 and other Nikkei indexes Index Business Office Nikkei Inc. Nikkei Inc. conducted the annual review of the management processes of the Nikkei 225 and other Nikkei indexes. As a result of the review, there are no changes to the Regarding the management of the Nikkei 225 and other Nikkei indexes on the following pages (Publication date is updated). 1
July 2018 Regarding the management of the Nikkei 225 and other Nikkei indexes Index Business Office Nikkei Inc. Nikkei Inc., the owner of the Nikkei Stock Average (Nikkei 225), is a leading Japanese media organization which evolved as a newspaper publisher with the history of nearly 140 years. Its corporate creed is to provide fair and impartial news and it upholds the principles of independence and freedom. These basic policies are also reflected in the indexes published by the company, such as the Nikkei Stock Average. As a media company, Nikkei excludes the external influences and provides reliable information to the public. The Nikkei 225 is known as a representative Japanese stock market indicator. It is managed by the set of rules open to the public and characterized as a highly transparent index. The Nikkei 225 is calculated by the stock prices from the exchange based on predefined procedures so that the index is robust to manipulation. Those who manage the index are prohibited from trading stocks and securities, and hence there is no source of conflicts of interests. 1. Governance The Nikkei 225 is administrated by Index Business Office, an independent organization in Nikkei Inc. The Index Business Office is responsible for all aspects of the indexes. Its calculation and dissemination is conducted by Quick Corporation, an affiliate of Nikkei Inc., under the commission of the Index Business Office with written agreements. Members of the Index Business Office and those who are in charge of the index operations are prohibited from trading stocks and there are no cases that they are rewarded by the performance of the index. The Index Business Office has its own internal rules of operations and written manuals with which the members must comply. Important changes to the Nikkei 225, such as a constituents 2
reshuffle, are reviewed by an independent committee in the company as well as the committee comprised of the outside professionals before they are made public. 2. Quality Market participants all over the world are familiar with the Nikkei 225 as it stands with a long history and continuity of more than 60 years. The Nikkei 225 has been and is a price weighted index and the methodology of the calculation is the same as that of the Dow Jones Industrial Average. So called Dow method is known and accepted among the financial communities as a formula to calculate stock indexes. Constituents of the Nikkei 225 are highly liquid stocks listed in the Tokyo Stock Exchange First Section. And so, the prices to calculate the index are sufficiently reflecting the supply and demand of the many and diversified market participants. The constituent selection rules as well as the calculation details are publicly available through the Nikkei Indexes Website to ensure high level of transparency. The methodologies are constantly reviewed and changes are made when necessary. Such changes are announced well ahead of the effective dates to make them fully share among the stakeholders and the market participants. 3. Methodology Index methodology, such as the constituent selection rules and the calculation details are made public through the Nikkei Indexes Website both in Japanese and English languages. The stakeholders can replicate the index using the publicly available information from the website and the stock prices from the exchange. When the index is licensed for financial products, the relevant written license agreements clearly stipulate the possibility of the termination or discontinuance of the index calculation, so that licensees fully acknowledge such risk. The stock prices used for the calculation is directly obtained from the exchange under the data license agreement, therefore, the integrity of the data source is protected. 3
4. Accountability The Index Business Office accepts questions and comments via its public e-mail address. Such address is found in the Nikkei Indexes Website. In addition, Nikkei Inc. has a call center for its readers including market participants. Various electronic media of Nikkei, such as digital editions of the newspaper, Nikkei Asian Review, have their own e-mail addresses. The Index Business Office responds to the questions and comments coming in through such other sections of the company. Compliance to the procedures and rules of the Index Business Office is regularly audited by an independent audit office of Nikkei Inc. 5. Joint operation indexes and other Nikkei indexes The JPX- Nikkei Index 400 and the JPX-Nikkei Mid and Small Cap Index are jointly operated by Nikkei and Tokyo Stock Exchange Inc., and those are administered by appropriate governance procedures of the each entity. The indexes are calculated and disseminated through transparent index determination process based on the predefined set of methodologies. In addition to the Nikkei 225, other Nikkei indexes are administered by the same index determination process, in principle. As described above, the Index Business Office acknowledges that the Nikkei 225 and the other Nikkei Indexes are reliable and robust indicators of the market. However, indexes and the related processes are reviewed constantly and it is our policy that they will be strengthened or changed where necessary. We also acknowledge that current index administration is in line with the Principles for Financial Benchmarks announced by International Organization of Securities Commissions (IOSCO) in July 2013. 4
Appendix : Change history Date Part Contents July 2017 5. Joint operation indexes and other Nikkei indexes Add the JPX-Nikkei Mid and Small Cap Index as a joint operation index which is administered same as the JPX-Nikkei Index 400 5